No, this is not a column about the Netherlands’ performance at the World Cup. Although, of course, the title fits this seamlessly. This column is about China and its Covid issues.
The Chinese authorities have grossly underestimated the anger of their people. That much may be clear. Although, contrary to popular belief, demonstrations in China do occasionally occur, it is rarely on such a large scale. The reason is simple. You can only ‘lock down’ people for so long before they revolt. And after the new lockdowns resulting from the biggest Covid outbreak so far - at least according to statistics - while earlier the Chinese government came up with a 20-point plan that was supposed to lead to some easing, the measure is full.
So what?
For now, the Chinese economy remains stuck in the ‘on-off’ mode it has been in for almost two years. The Manufacturing PMI for November dropped to 48, yet another confirmation that China’s production engine is faltering. Don’t expect any relief from China in the short term as the global economy heads for recession.
Light at the end of the tunnel?
It may be well known that you have to take most thoughts on social media with a large grain of salt. But the number of ‘connoisseurs’ who assume that China is preparing an intervention towards - or even invasion of - Taiwan in order to divert attention from the Covid policy is fairly stultifying.
I rather think the opposite. It is impossible to completely stop the spread of Omicron (and probably newer variants). It seems obvious to me that the Chinese authorities are also aware of this. To quell the protests in a ‘peaceful’ way, a relaxation of Covid policy under the guise of ‘listening to the people’ and ‘democracy’ is the obvious way forward. This also offers President Xi Jinping a way out to avoid the debate on what is now the best strategy - Xi invariably maintained during all recent speeches that China’s Covid policy is superior. After all, the ‘democratic’ government gives the people what they want - more freedom.
Markets
In the past few days, the revived prospect of less stringent Chinese measures has been eagerly embraced. The price of oil, which fell nearly 10 per cent as images from ‘iPhone City’ and others went viral, has wiped out all losses. Of course, OPEC+’s supposed intention to cut production further also has something to do with this. But Chinese stock markets have also recovered considerably in recent days. A real ‘reopening’ could just become the surprise of 2023.
For now, for stock markets it is back to inflation versus the Federal Reserve. After several weeks in which inflation was on the winning side, the roles seem to have reversed in the recent days.
Jeroen Blokland is founder of True Insights, a platform that provides independent research to build diversified multi-asset portfolios. Blokland was most recently head of multi-assets at Robeco. His chart of the week appears every Monday on InvestmentOfficer.lu.
This article originally appeared on InvestmentOfficer.nl.